When you’re looking to secure a bridge financing facility through a real estate mortgage, there are three primary requirements that you need to cover off.
More specifically, you need to be able to satisfy the lenders 1) security requirements, 2) debt servicing requirements, and 3) loan repayment requirements.
There can certainly be many other loan requirements for any particular deal, but regardless of the deal these three items are going to need to be covered off.
Let’s look at each one in more detail.
A bridge loan secured by real estate is essentially an equity based loan where the lender is primarily concerned about the market value of the property and the amount of equity that will exist once the requested financing amount is advanced.
Bridge financing on residential properties can be as high as 90% loan to value provided that the resale market for the property is strong enough for fast resale and provide for accurate sale value estimates.
Bridge loans on commercial property tend to fall in the 50% to 75% loan to value range. Once again, the higher the marketability and value predictability of any given property, the higher the potential loan to value that can be extended by a lender.
The second aspect of loan to value is security position.
Some bridge lenders will only consider a first mortgage position while others may consider a second or even third or fourth mortgage position.
Each property and lender can be unique in this regard as well.
During the loan term, the lender will require debt servicing to either cover the cost of interest only, or provide for a principal and interest payment.
The debt servicing will either need to be provided from existing cash flows that are acceptable to the lender, or funds will need to withheld from the loan advance to cover off the debt servicing requirements during part or all of the loan term.
If prepaid interest is required, then the amount of the prepayment will need to be added to the total funds required when determining the loan amount and if the loan amount will then meet the loan to value assessment by the lender for a particular deal.
The last key ingredient to a bridge financing request is the proposed exit strategy to repay the loan either at the end of the term or during the term.
The best exit strategies are one’s where a specific event or transaction will take place that will create proceeds payable directly to the lender.
This is common on real estate purchasing and refinancing transactions and on business contracts and purchase order transactions.
Basically, the more certain or likely the exit strategy is, the more potential for it to be accepted by the bridge lender.
If there is not a strong exit strategy offered up by the borrower, then the lender has to be very confident that in the worst case scenario, the property has the equity and marketability to allow repayment of the debt through other means be that sale or refinance as examples.
When all three of these requirements are well addressed, then a bridge financing arrangement is more likely to be consummated between borrower and lender.
And if all the supporting information and documentation for each of these requirements is readily available, a bridge loan can be approved and funded in very short time period.
If you’re looking to secure bridge financing, offering real estate as the primary loan security, then I suggest that you give me a call so we can quickly go through your requirements and discuss different potential options available to you.
Click Here To Speak With Toronto Private Mortgage Broker Joe Walsh For A Free Assessment Of Your Bridge Financing Options